Natural gas producers fume as TransCanada limits access to key pipeline<\/a><\/li>\n<\/ul>\nTransCanada said the average term the company awarded for space following one of its recent open season bidding processes was 107 years, which is longer than any pipeline is regulated to last.<\/p>\n
The century-long contract is also quadruple the length of similar contracts TransCanada has awarded in recent months as the company has carried out multiple open seasons.<\/p>\n
\u201cFor the East Gate capacity constraints, these are the longest contracts presently on the system. We believe they are the longest ever, but can\u2019t say with absolute certainty,\u201d TransCanada spokesperson Shawn Howard said in an email.<\/p>\n
He said the company does not have an average contract length for comparison, but similar open season processes resulted in an average 28.6-year and 22-year terms in January and March.<\/p>\n
Each of the recently signed contracts demonstrates \u201cthe high value shippers placed on having firm transportation access on the NGTL System to downstream export markets,\u201d Howard said.<\/p>\n
While natural gas producers have been under stress as liquefied natural gas export projects have stalled in Canada, the length of the contracts has surprised companies and analysts.<\/p>\n
\u201cI just don\u2019t understand how you can run your business with a 100-year time horizon,\u201d Raymond James analyst Jeremy McCrea said of the 107-year average contract term.<\/p>\n
It has also led to something of a mystery among gas producers, as companies try to ascertain what kind of company \u2013 either a utility or a gas producer \u2013 would agree to a contract that long.<\/p>\n
\u201cWho would\u2019ve done that?\u201d Jupiter Resources Inc. vice-president, capital markets Ryder McRitchie said, adding that someone must have offered a contract far longer than 107-years to TransCanada to inflate the average so much.<\/p>\n
McRitchie said that shippers \u2013 whether they are gas producers or utility companies \u2013 bid for space on the NGTL system based on volume and contract lengths, not price, because the National Energy Board regulates the tolls to move gas.<\/p>\n
As a result, when shippers need space, some will bid for longer time periods than the 20- to 30-year contracts that typically get awarded on the system. The minimum bid term for the system is 8 years.<\/p>\n
\u201cIt\u2019s really the choke point right now,\u201d McRitchie said of trying to move natural gas to the East Gate in Alberta. \u201cThat\u2019s what this is highlighting.\u201d<\/p>\n
TransCanada has now held multiple open seasons and committed to expanding its NGTL system within Alberta in an attempt to alleviate some of the choke points, which have at times prevented gas producers in the northwestern corner of the province to send all of their gas production to the East Gate or the West Gate, which is at the B.C. border.<\/p>\n
In various places on the system, including upstream of James River in central Alberta, TransCanada has more contracts in place than it can accommodate at all times, especially during maintenance periods. <\/p>\n
As a result, some natural gas producers believe the unprecedented 107-year average contract length demonstrates the desperation gas producers experience in trying to secure delivery of their product to customers.<\/p>\n
\u201cPeople are bidding irrational terms,\u201d another natural gas executive said on condition of anonymity as open seasons are competitive processes. He said his company bid multiple times on TransCanada\u2019s recent open seasons but has not won any additional space on the NGTL system.<\/p>\n
He said the 107-year average term for pipeline space awarded in February \u201cis longer than any pipeline will last.\u201d<\/p>\n
The National Energy Board did not respond to a request for comment on how long a regulated pipeline can safely operate.<\/p>\n
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